MUKTADEVI GRAMIN BIGARSHETI SAHAKARI PATSANSTHA MARYADIT GUNJALWADI,PUNE V. ITO WARD10(1), PUNE

ITA 1841/PUN/2024

AI Insights

The case involves Muktadevi Gramin Bigarsheti Sahakari Patsanstha Maryadit, a Co-operative Credit Society, which appealed against the orders of the Commissioner of Income Tax (Appeals) that disallowed deductions claimed under section 80P of the Income Tax Act for the assessment years 2018-19 and 2020-21. The society argued that the interest income from deposits with Co-operative Banks and other banks should be considered as business income and thus eligible for deductions under sections 80P(2)(a)(i) and 80P(2)(d). The Tribunal considered various judicial precedents and the specific provisions of the Income Tax Act, ultimately deciding in favor of the society.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312442 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax, Calicut, PCIT Vs. Peroorkada Service Co-operative Bank Ltd., Thorapadi Urban Co-op Credit Society Ltd. Vs. Income Tax Officer, Reserve Bank Staff and Officers Vs. ITO, The PCIT-17, Mumbai vs M/s. Annasaheb Patil Mathadi Kamgar Sahakari Patpedhi Ltd., The CIT(Central), Nagpur VS Buldhana Urban Co-op. Credit Society Ltd., The Quepem Urban Co-op. Credit Society Ltd., Goa vs. ACIT, Circle-1, Margao, The CIT-22, Mumbai VS Shri Kulswami Co-op. Credit Society Ltd., M/s. New Satara Zilla Nagrik Sahakari Patsastha Maryadit vs NFAC Delhi, The ITO, Pune V/s Vishwakarma Sarakshan Kamgar Sahakari Patsanstha Maryadit
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P. MURKUNDE
• Assessee Lawyers: VILAS R. JADHAV; PRIYANKA V. JADHAV; CATENA OF; CATENA OF DECISIONS OF VARIOUS JUDICIAL FORUMS INCLUDING JURISDICTIONAL
• Keywords: Set aside; Business income; Source of fund; Co-operative Credit Society
• Section: 143(3); 56; 2

Judgement Text

" आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA Nos.1841 & 1842/PUN/2024 धििाारण वर्ा / Assessment Years : 2018-19 & 2020-21 Muktadevi Gramin Bigarsheti Sahakari Patsanstha Maryadit Gunjalwadi, At Post – Gunjalwadi, Taluka-Junnar, District – Pune- 412401 PAN : AAAAM6151H Vs. ITO, Ward-10(1), Pune अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Vilas R. Jadhav & Priyanka V. Jadhav Department by : Shri Ramnath P. Murkunde Date of hearing : 04-02-2025 Date of Pronouncement : 30-04-2025 आदेश / ORDER PER ASTHA CHANDRA, JM : Two appeals filed by the assessee are directed against the two separate order(s) dated 02.07.2024 and 09.07.2024 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Years (“AYs”) 2018-19 and 2020-21. For the sake of convenience both the appeals were heard together and are being disposed of by this common order. ITA No. 1842/PUN/2024, AY 2020-21 2. Briefly stated the facts are that the assessee is Co-operative Credit Society registered under the Maharashtra Co-operative Societies Act, 1960 having registration certificate dated 03.12.1991. The business of the assessee is to make the credits to the members of the society by raising the deposits from them. All the transactions of the society are restricted to members of society only. For AY 2020-21, the assessee filed its return of income on 08.12.2020 claiming deduction u/s 80P of the Income Tax Act, 1961 (the “Act”) in respect of interest income received on its investments in the form of term deposits with banks. The case of the assessee was selected for complete scrutiny. Accordingly, statutory notice(s) u/s 2 ITA Nos.1841 & 1842/PUN/2024, AYs 2018-19 & 2020-21 143(2)/142(1) of the Act along with questionnaire were issued and served upon the assessee asking the assessee to furnish certain information in respect of the deduction claimed by the assessee, in response to which the assessee filed its detailed submissions before the Ld. Assessing Officer (“AO”). Before the Ld. AO, taking support from the catena of decisions pronounced by various judicial forums on the impugned issue, the assessee contended that the interest income earned by the assessee during the relevant AY from deposits with Co-operative Banks tantamount to business income of the assessee and is an allowable deduction u/s 80P(2)(a)(i) of the Act. Alternatively, the said income is also an allowable deduction u/s 80P(2)(d) of the Act. The details of the bank interest amounting to Rs.84,44,562/- earned by the assessee during the relevant AY under consideration are as under: Particulars Amt. Rs. Interest Received From Co-operative Banks 83,35,063/- Interest Received From other than Co-operative Banks 1,09,499/- Total Rs. 84,44,562/- 2.1 The Ld. AO, however found the contentions of the assessee as without there being any merit in them and disallowed the deduction claimed by the assessee u/s 80P(2)(a)(i)/80P(2)(d) of the Act amounting to Rs.84,44,562/- treating the same as “other income” taxable under the provisions of section 56 of the Act. Accordingly, the Ld. AO completed the assessment on 07.09.2022 u/s 143(3) r.w.s. 144B of the Act disallowing the claim of deduction u/s 80P(2) amounting to Rs.84,44,562/- in respect of interest income earned by the assessee from Co-operative Banks/ Commercial Banks /Financial Institutions during the relevant AY 2020-21. 3. Aggrieved, the assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee contended that the interest income received from Co-operative Banks is a part of its business income and therefore its claim for deduction u/s 80P(2)(a)(i) of the Act ought to have been allowed. It was also submitted that in case of denial of deduction u/s 80P(2)(a)(i) of the Act, an alternate claim u/s 80P(2)(d) of the Act should be allowed to the assessee in view of the various decisions on the impugned issue rendered by the Tribunal which are favourable to the assessee. The assessee also contended that if deduction u/s 80P is not considered then the deduction 3 ITA Nos.1841 & 1842/PUN/2024, AYs 2018-19 & 2020-21 u/s 57 ought to be allowed in respect of interest paid by netting it off against the interest income. 3.1 The Ld. CIT(A) relying on the decision of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax, Calicut (2021) 123 taxmann.com 161 (SC) rejected the assessee’s claim of deduction u/s 80P(2)(a)(i) of the Act. The Ld. CIT(A) also rejected the assessee’s alternate claim of deduction u/s 80P(2)(d) of the Act placing reliance on the decision(s) of the Hon’ble Kerala High Court in the case of PCIT Vs. Peroorkada Service Co-operative Bank Ltd. and the Hon’ble Madras High Court in the case of Thorapadi Urban Co-op Credit Society Ltd. Vs. Income Tax Officer and the decision of the Jurisdictional ITAT Mumbai in the case of Reserve Bank Staff and Officers Vs. ITO in ITA No. 3114/Mum/2023, dated 22.01.2024. The Ld. CIT(A) restricted the deduction u/s 80P(2)(d) of the Act to the extent of net interest earned from investments with Co-operative Banks only which are registered under the Co-operative Societies Act and not from other Commercial Banks and Financial Institutions which were to be assessed under the head “Income from other sources” thereby partially allowing the assessee’s claim for deduction u/s 80P(2)(d) of the Act and accordingly holding that the alternate claim of deduction u/s 80P(2)(c) and u/s 57 of the Act are rendered infructuous. The relevant findings and observations of the Ld. CIT(A) are reproduced below : “4.5 The facts in present appeal, are that the appellant is registered as a Cooperative Society under and further does not have any banking license issued by RBI to carry on the business of a banker. Thus, the appellant is out of the harm's way and is not hit by the provisions of Section 80P (4) of the Act. Once it is established that the appellant is out of the purview of Section 80P (4), then it becomes eligible for deduction u/s.80P of the Act subject to the fulfilment of other conditions stipulated in Section 80P of the Act. 4.6. However, it is also held by the Hon'ble Supreme Court in the case of Mavilayi (supra) the AO is well within the ambit of law to examine the activities which fall within or outside the ambit of Section 80P(2)(a)(i) of the Act and determine the eligible profits ad gains of business from such activities that can be allowed as a deduction. Since the Hon'ble Supreme Court has also held in Mavilayi (supra) that in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted\", the disallowance of deduction u/s. 80P(2)(a)(i) ought to be restricted to only those profits and gains from appellant's transactions with such non-members if any. These are not in dispute in present appeal. 4.7. As far as the claim of deduction u/ 80P(2)(a) on the interest income of from the investments held with cooperative banks, commercial bank and other financial institutions are concerned, it may be noted that the income in the form of interest is clearly not earned from the eligible activity of giving credit facility to its members but only from its investment held with outsider 4 ITA Nos.1841 & 1842/PUN/2024, AYs 2018-19 & 2020-21 banks and institutions who are not its members. Thus, at the threshold, the claim of the appellant for deduction u/s. 80P(2)(a) in respect of such income fails the test laid down by the Hon'ble Supreme Court in the case of Mavilayi (supra). 4.8. Further, without prejudice to the above finding, even if the argument of the appellant that the source of funds for investments were from out of its surplus funds and hence the interest income therefrom ought to be treated as business income is weighed in, then also, it would not per se lead to the inference that all business incomes of the appellant are automatically entitled to deduction u/s. 80P(2)(a) of the Act. 4.9. As specifically held by the Hon'ble Supreme Court in the case of Mavilayi (supra), it is only the income from eligible activities as mentioned u/s.80P(2) if carried on with its members, would be eligible for deduction u/s. 80P(2)(a) of the Act. It is categorically held therein that even if the activity is one of the eligible activities listed out in Sub section (2) of Section 80P, then also if the same is carried on with a non-member, it would not be eligible for deduction u/s. 80P(2)(a) of the Act. 4.10. In appellant's case, the impugned interest income has been earned not from its activity of any eligible business operation with members but only by way of an investment with non-member banks, who are rank outsider institutions that are not even nominal members of the appellant. The decisions relied on by the appellant do not over rule this binging interpretation of law laid down by the Hon'ble Supreme Court in the case of Mavilayi (supra). 4.11. Thus, the appellant's case is squarely hit by the specific directions of the Hon'ble Supreme Court in Mavilayi (supra) that \"in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted\". 4.12. Respectfully following the decision of the Hon'ble Supreme Court the impugned interest income has been rightly held as taxable under the head \"Income from other sources\" by the AO and hence the denial of deduction u/s.80P(2)(a) does not warrant any interference. 4.13. However, regarding the alternate claim of the appellant that the interest income from its investments may be allowed as a deduction u/s.80P(2)(d), it is seen that the jurisdictional ITAT, Mumbai in the case of Reserve Bank Staff and Officers Vs ITO in ITA No.3114/Mum/2023 vide order dated 22.01.2024 has held that interest on investments held with cooperative banks which by themselves are registered as cooperative societies is eligible for deduction u/s.80P(2)(d) of the Act. Similar decisions have been rendered by the Hon'ble Kerala High Court in the case of PCIT vs Peroorkada Service Co-operative Bank Ltd and the Hon'ble Madras High Court in the case of Thorapadi Urban Co-op Credit Society Ltd Vs Income Tax Officer, after the decision by the Hon'ble Supreme Court in the case of Mavilayi (supra). 4.14. In view of the above judicial pronouncements, it is held that the impugned interest income from investments held with Cooperative Banks which by themselves are registered as Cooperative Societies under the respective State Act alone are to be allowed as deduction under Section 80P(2)(d) of the Act. 4.15. For sake of clarity, it is also made clear that deduction u/s. 80P(2)(d) shall be restricted to the extent of net interest income earned from investments with co-operative banks only which are registered under Cooperative Societies Act and other interest income from commercial banks and other institutions if any shall not be allowed as deduction u/s. 80P(2)(d) which shall be assessed under the head \"Income from Other Sources\" accordingly and deduction u/s. 80P(2)(d) shall be allowed thereon. Appellant's Ground on the issue is allowed partly. 5 ITA Nos.1841 & 1842/PUN/2024, AYs 2018-19 & 2020-21 4.16. Since appellant's claim for deduction u/s. 80P(2)(d) has been allowed partially, the alternate claims of deduction u/s. 80P(2)(c) and u/s. 57 are rendered infructuous.” 4. Dissatisfied, the assessee is in appeal before the Tribunal raising the following solitary ground of appeal:- “1. On the facts and in the circumstances of the case and in law, the appellant submits that Ld. CIT(A) erred by making disallowance of our claim for deduction u/s. 80P(2) of the Act. The appellant, therefore, prays that deduction u/s. 80P(2)(a)(i) and 80P(2)(c)(ii) be allowed to us as claimed in ITR.” 5. At the outset, the Ld. AR submitted that in the assessee’s own cases the Ld. CIT(A)-6, Pune has allowed deduction u/s 80P(2)(a)(i) of the Act for AY 2011-12 and AY 2015-16 vide order(s) dated 09.01.2020 (Pages 102 to 111 refers). Similarly, the CPC, Bangalore has also allowed deduction u/s 80P(2)(a)(i) of the Act for AY 2021-22, AY 2022-23 and 2023-24 to the assessee society, as well as many other Co-operative Credit Societies (Pages 163 to 167, 168 to 171 & 172 to 175 respectively refers). He further submitted that the impugned issue is squarely covered in favour of the assessee by catena of decisions pronounced by various Benches of the Tribunal including the Pune Tribunal. He further referred to the decision(s) of the Hon’ble Supreme Court and Jurisdictional High Court wherein the Hon’ble Courts have allowed the claim of deduction u/s 80P(2)(a)(i) of the Act under the similar set of facts as that of the assessee (Pages 112 to 133 of the paper book refers). He submitted that the Jurisdictional Tribunal has consistently allowed the claim of deduction in respect of interest income earned by the assessee from the Co-operative Banks/Co-operative Society u/s 80P(2)(a)(i)/80P(2)(d) of the Act (Pages 134 to 157 of the paper book refers). In support thereof, the Ld. AR submitted the compilation of the following cases : “I) The deduction u/s. 80P is allowed to total income including Interest received on Bank Investments to the following Co-operative Credit Societies wherein the facts and circumstances of these cases are similar to the cases of the Appellant. A. The Hon'ble Supreme Court in case of-The PCIT-17, Mumbai vs M/s. Annasaheb Patil Mathadi Kamgar Sahakari Patpedhi Ltd., Civil Appeal No. 8719/2022 dt. 20/04/2023. B. The Hon'ble High Courts: a. The CIT(Central), Nagpur VS Buldhana Urban Co-op. Credit Society Ltd., Buldhana, in the High Court of Judicature at Bombay Nagpur Bench Nagpur, Tax Appeals No.28 of 2013, Dt. 20th June, 2013. 6 ITA Nos.1841 & 1842/PUN/2024, AYs 2018-19 & 2020-21 b. The Quepem Urban Co-op. Credit Society Ltd., Goa vs. ACIT, Circle-1, Margao in High Court of Bombay at Goa, Tax Appeals No.22, 23 & 24 of 2015, Dt. 17th April, 2015. c. The CIT-22, Mumbai VS Shri Kulswami Co-op. Credit Society Ltd., Navi Mumbai, in the High Court of Judicature at Bombay Ordinary Original Civil Jurisdiction, Tax Appeals No.1682 & 1873 of 2014, Dt. 20th March, 2017. C. Hon'ble ITAT, Pune & Mumbai: a. M/s. New Satara Zilla Nagrik Sahakari Patsastha Maryadit, Mumbai-12 vs NFAC Delhi-110041, ITAT Mumbai, \"B\" Bench, ITA Nos.209, 210 & 211/M/2023 dt.27/04/2023. b. The ITO, Pune V/s Vishwakarma Sarakshan Kamgar Sahakari Patsanstha Maryadit, Shaniwar Peth, Pune-411 030, ITA Nos. 450 & 451/PUN/2024, ITAT, Pune: \"B\" Bench, Pune; dated 09/08/2024. D. The credit Societies are also eligible for deduction u/s. 80 P(2) (c) (ii) of the Act. a) Rashtriya Chemical and Fertilizers Employees Co-op. Credit Society Ltd. V/s The ITO, 27(3)(1) Navi Mumbai;, ITAT Mumbai, \"D\" Bench, M.A. Nos. 201, 202 & ITA Nos. 2283 & 2284/Mum/2022 dt. 24/05/2023. 6. The Ld. DR fairly conceded with the above submission of the Ld. AR that the impugned issue is covered in favour of the assessee by catena of decisions of various judicial forums as cited by the Ld. AR. 7. We have heard the Ld. Representatives of the parties and perused the material on record and various judicial precedents cited by the Ld. AR as well as the paper book filed by the Ld. AR on behalf of the assessee. The facts of the case are not in dispute. During the relevant AY 2018-19, the assessee has received interest from Co-operative banks amounting to Rs.83,35,063/- and Rs.1,09,499/- from other than Co-operative banks; totaling to Rs.84,44,562/- and claimed deduction u/s 80P(2)(a)(i)/ 80P(2)(c)/80P(2)(d) of the Act, which has been disallowed by the Ld. AO in entirety and allowed in part by the Ld. CIT(A) for the reasons reproduced above. We find that the issue is squarely covered in favour of the assessee by catena of decisions of various judicial forums including Jurisdictional Pune and Mumbai Tribunal wherein it has been consistently held that interest income earned from Co-operative banks as well as non-Co- operative banks are eligible for deduction u/s 80P(2) of the Act as the same is attributable to the business of the assessee society. Respectfully following the decision(s) (supra) and in the absence of any contrary material brought on record by the Ld. DR, we hereby set aside the impugned order of the Ld. CIT(A) and allow the deduction claimed by the 7 ITA Nos.1841 & 1842/PUN/2024, AYs 2018-19 & 2020-21 assessee u/s 80P(2)(a)/80P(2)(c)/80P(2)(d) of the Act. The solitary ground of appeal raised by the assessee is accordingly allowed. 8. In the result, the appeal of the assessee is allowed. ITA No. 1841/PUN/2024, AY 2018-19 9. Both the sides are unanimous in stating that the facts and the solitary ground of appeal in ITA No. 1841/PUN/2024 for AY 2018-19 is identical to the ground raised in ITA No. 1842/PUN/2024 for AY 2020-21 except for the variance in amounts. Thus, in view of the fact that the issue raised in both the appeals are identical and are arising from same set of facts, the finding given by us while adjudicating the appeal in ITA No. 1842/PUN/2024 would mutatis mutandis apply to the appeal in ITA No. 1841/PUN/2024 as well. Accordingly, the ground of appeal raised by the assessee in ITA No. 1841/PUN/2024 is hereby allowed in the same terms. 10. To sum up, both the appeals of the assessee for AYs 2018-19 (ITA No. 1841/PUN/2024) and 2020-21 (ITA No. 1842/PUN/2024) are allowed. Order pronounced in the open court on 30th April, 2025. Sd/- Sd/- (R.K. Panda) (Astha Chandra) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 30th April, 2025. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune "